Accessible Version
The Corporate Bond Market Crises and the Government Response, Accessible Data
Figure 1. Spreads of corporate bond yields over comparable Treasury yields
Yield spreads for investment-grade vs. high-yield bonds. Chart plots daily spreads of corporate bond yields over comparable Treasury yields for investment-grade and high-yield bonds. The left and the right y-axes measure yield spreads for investment-grade and high-yield bonds respectively, and the x-axis measures time from February 2020 to June 2020. Investment-grade bond yield spread is around 1% in February. It starts to widen in late February, and reaches 4% when the Federal Reserve announced the creation of the SMCCF and PMCCF on March 23. After that announcement, investment-grade yield spread declines gradually through April and May, and stabilizes at a bit over 1% after the SMCCF began purchase individual bonds on June 16. High-yield bond yield spread exhibits a similar pattern, rising from 4% in February to about 11% on March 23, and then decreases gradually before stabilizing at around 6% in early June.
This figure shows movements in ICE BofA option−adjusted yield spreads for US investment−grade and high−yield bonds around the onset of the Covid−19 crisis period.
Data source: Federal Reserve Bank of St. Louis.
Figure 2. Transaction costs for investment−grade and high−yield corporate bonds
Transaction costs for investment-grade vs. high-yield bonds. Chart plots the daily average transaction costs, separately for investment-grade and high-yield bonds. The y-axis measures transaction cost and the x-axis measures time from February to June 2020. Details on estimating transaction costs is provided in O’Hara and Zhou (2020). For investment-grade bonds, transaction cost is slightly below 30 basis points (bps) in February. It starts to increase in late February and jumps from about 40 bps on March 5 to close to 90 bps in mid-March. Immediately following the implementation of the PDCF on March 20 and the March announcement of the SMCCF, transaction cost starts to decrease. It continues to decline until late April, and has been relatively stable since. Transaction cost for high-yield bonds generally follows a similar pattern, but remains elevated longer until the announced inclusion of recent fallen angels and high-yield ETFs in the SMCCF on April 9. It continues to decline in April and returns to its February levels in May and June.
Data source: TRACE data provided by FINRA. See O'Hara and Zhou (2020) for details on estimating transaction costs.
Figure 3. Cumulative inventory changes since the beginning of February for primary and other dealers
Inventory changes for primary and other dealers. Chart plots cumulative inventory changes since the beginning of February separately for primary dealers and other dealers. The y-axis measures cumulative inventory changes and the x-axis measures time from February 2020 to June 2020. For primary dealers, cumulative inventories are relatively stable though they begin to drop around March 5. After the implementation of the PDCF on March 20 and the announcement of the SMCCF on March 23, primary dealers start to accumulate inventories. By mid-May, primary dealers’ inventories have risen to substantially higher levels than they were at the beginning of February. For other dealers, inventories drop much more than those of primary dealers during March, but also begin to rebound after March 23. Both primary dealers and other dealers’ cumulative inventories reach much higher levels in June compared to pre-pandemic levels.
Data source: TRACE data provided by FINRA. See O'Hara and Zhou (2020) for details on constructing cumulative dealer inventory changes.
Figure 4. Transaction costs for customer−to−dealer (C−to−D) and customer−to−customer (C−to−C) trades
Transaction costs for customer-to-dealer (C-to-D) and customer-to-customer (C-to-C) trades. Chart plots the daily average transaction costs, separately for C-to-D and C-to-C trades. The y-axis measures transaction cost and the x-axis measures time from February 2020 to June 2020. Prior to March 5, C-to-C trading costs average 24 bps, about 40% lower than in C-to-D trading. Starting on March 6, C-to-C trading costs soar and far surpass the rising C-to-D trading costs. The gap in trading costs between C-to-C and C-to-D peaks right before the launch of Fed facilities, when C-to-C costs reach 165 bps, more than double C-to-D costs. This gap then then begins to shrink and, by late April, transaction costs for C-to-C trades fall below those for C-to-D and remain stable thereafter.
Data source: TRACE data provided by FINRA. See O'Hara and Zhou (2020) for details on estimating transaction costs for C−to−D and C−to−C trades.